Home loan: Fixed vs floating rates

Investing in a financial product, whether it is a home loan, involves your hard earned money. So it is important that you take time off to look at various aspects before rushing in to something. While applying for a home loan, the prior thing that will bother you is whether to choose fixed interest rate or floating interest rate. Let us see which option is worth for you?

Fixed versus floating dilemma

Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. With fixed interest rate loans, the interest rate and hence the EMI remains fixed, whereas in floating rate loans, the interest rate or the tenure may move up and down. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk when it comes to choosing between the two.

In most cases you will also be given the option to switch from fixed to floating rates and vice versa. However, you will be charged for every switch that you make during the tenure of your loan. If you believe in taking risks with the hope that you will benefit when interest rates fall, you can opt for floating interest rates or else you can happily settle for a fixed repayment schedule.

Pros and Cons of Fixed Interest Rates:      

Since home loans demands a long term commitment in comparison to other loans, a fixed interest rate convey a sense of certainty in terms of loan repayment. People who are good at budgeting can get a clear vision of their EMI liabilities if they select for a fixed-rate home loan.

The major drawback with fixed interest rates is that they are usually 1 – 2.5 percentage points higher than the floating rate home loan. Secondly, if for any reason the interest rate decreases, the fixed rate home loan doesn’t get the benefit of reduced rates and the borrower has to repay the same amount every time. Another area of concern is whether the fixed rate home loan is fixed for the entire tenure or only for a few years. This has to be cross-checked with the bank while taking the home loan.

Pros and Cons of Floating Interest Rates:

Floating interest rate varies with market conditions and interest rates are bounded to a base rate and a floating element thereof. So, if the base rate varies the floating interest rate also varies. Although floating interest rates are cheaper than fixed interest rates, but the nature of monthly installments is uneven. This makes it difficult to budget with floating interest rate home loans.

Market Behaviour:  

Recently, fixed rate loans have gained popularity in India. Many financial institutions and banks are now engaging applicants utilizing fixed interest rate schemes. ICICI Bank has initiated a scheme proposing home loans up to 10 years at a fixed rate of up to 10.25%, while Citibank offers a fixed rate of 10.1% till September 2015.

Experts agree on the fact floating interest rates are a better option if the economic scenario promises a fall in interest rates in the near future. For a short term loans opting for a fixed interest rate would be beneficial whereas floating interest rate is recommended for people taking a home loan for a long tenure at this given time.

Visit www.cibilconsultants.com
Source- Secondary

It results in paying more for your loans, if you have poor score!

People are increasingly becoming dependent on credit for a variety of reasons, such as buying or renovating their homes, going for a vacation, buying gadgets, and so on. Availing of loans actually smoothen cash flow during hard times. Hence, it is essential to know what your credit score is, how it is computed, the importance and, of course, ways and means to acquire and maintain good a credit rating.

Credit scoring and its mechanics

Availing of a credit means that one is borrowing money with a promise to pay it back within a specified period of time, with interest. Credit score is a statistical method to compute the possibility of a person paying back the money that he has borrowed. Credit bureaus, such as Credit Information Bureau-India (Cibil), issue these scores based on various parameters, such as current debt, credit type mix, credit utilisation, recent behaviour, time length, credit history and frequency of applications for new credit and, of course, repayment capability. The score assigned by Cibil ranges between 300 and 900. A score closer to 900 depicts the confidence in the ability of a person to repay the loan. A good credit score not only determines whether a person qualifies for the loan or not, but also increases the chances of availing of the loans faster.
                               

Importance of credit score

When a person applies for a credit card or a housing loan, his credit score is checked. According to a person’s credit score, bankers will compute what risk he poses to them. From the lenders’ point of view, increased credit risk means that a risk premium must be added to the loan. If a person has a poor credit score, lenders will lend him money at a higher rate than someone who has a better credit score. The differential interest, owing to the poor credit score, will have a significant impact on the equated monthly installment (EMI).

Ways and means to acquire a good credit score

Timely repayment of a loan and, also, the correct amount — paying less than what is due will negatively affect your credit score — is important. Don’t ignore the overdue bill. If you are facing difficulties in repayment, you should call the lender to make an arrangement. If you inform the lender about your problems, they are often flexible.

Be aware from whom and what type of loan you propose to avail. Generally, credit from non-banking finance companies carries higher interest rates and rigid terms and conditions. One must keep the outstanding debt as low as possible and avail of credit only when it is absolutely essential, keeping in mind the current and near-future cash cycles.

Source: Ssecondary

Debts shape your CIBIL

Paying off or defaulting on your debts plays a major role in shaping your CIBIL report. One late payment on your debts could affect your credit score in a very negative way. So, what does it need to pay off these debts faster in order to maintain your credit score at a good score?

There are two main ways to get rid of debt faster:

1. Don’t let your debts increase: 

The first and foremost thing you could do is to, don’t let your debts increase. Pay off the installments on time; don’t skip any installments as that could affect your credit score negatively. As the debts would increase, it would become that much harder to retain your credit score.

2. Try to reduce the interest rates:

Secondly : Don’t let the interests on your debts pile up –that would affect your credit score much more. If you are not able to pay off your debts, talk to the banks to give you reduction in the interest rates. You may not be aware of this but some banks do give recessions like these.

You can also apply with the same banks for a balance transfer or debt consolidations. In Balance Transfer cards, banks let you shift off your balance to a zero or low interest cards so that you can pay off your debts faster without the worry of the interest piling on. While in debt consolidation, you can consolidate your multiple debts by taking one debt to pay it all off. This saves you time, money and also the efforts to maintain those multiple debts.

These are some of the ways you could pay off your debts faster and save your credit score from dropping drastically.

www.cibilconsultants.com is the right place to seek for such problems.

Source: Secondary

To Pay Less Next Time, Repay Loan Installments On Time.

You may soon be able to negotiate lower interest rates on loans offered to you by banks and non-banking finance companies.

Have you always been paying your personal loan installments on time? Never defaulted on your credit card bills?

Good. You may soon be able to negotiate lower interest rates on loans offered to you by banks and non-banking finance companies (NBFCs).

But those who default, beware: you may have to shell out far more for everything, from personal loans to home loans and insurance premia.

The Credit Information Bureau of India Ltd (Cibil) has launched a rating system based on the gigantic amount of data on personal loans that is in its possession.

Cibil maintains a database on the credit history of over 135 million individuals and companies. It will now provide personal loan scores ranging between 300 and 900, where 900 indicates a good borrower.

This score is referred to as the Cibil Trans Union Personal Loan Score and a bank or NBFC can access this score through Cibil.

“Earlier, there was no objective mechanism to distinguish a good personal loan borrower. But with the personal loan score, individuals may be able to get lower interest rates for a good score,” said Satish Pillai, general manager, analytics and decisioning services at TransUnion, a stakeholder in Cibil.

The personal loan score is based on the amount of loans you have pending with other members of Cibil, your repayment track record, the number of inquiries that banks have made on your credit history, the amount of loans you have given up repaying (defaulted on), your credit card repayments, and in case there are any suits filed or loan write-offs.   But if you are wondering how you will get to know your rating then you will have to wait. 

“By the end of this year we will be ready with the infrastructure to provide individuals their own credit score,” says Arun Thukral, Cibil managing director.

Once you know your credit record, you can negotiate with a bank to give you better rates. Of course, the bank would have many other parameters to take a decision, but repayment capability would be a major criterion. 

This score will be available to all 165 member banks of Cibil and other financers to help them weigh the chances of a borrower defaulting on a loan.

Thus, if a bank gets an application from a person and finds that his personal loan score is 890, then it would be willing to welcome such a quality customer. Personal loan interest rates offered by banks differ from individual to individual, ranging from 15 to 30%, with some NBFCs charging up to 48%, as per industry estimates.

Source: Secondary

Manage Your Debt

It has become really hard dealing with credit in the present economic conditions. Your loan application is examined more thoroughly now by lenders and banks. Your credit report is what is used to evaluate your loan application and debt forms a big factor of your report. But managing debt is different for every individual as your debt could be because of different circumstances like job loss, medical conditions, etc. You can just follow these basic tips to manage your debt:

Prioritize:
Prioritize your payments; Think of paying off which debt would be beneficial to you. Decide if you want to pay off a smaller debt first or debt with higher interest first.

Negotiate:

Negotiate with your bank or creditor to lower your interest.Talking to your banks helps you as they cooperate with you for your debt payments.

Debt Consolidation: 
If negotiating doesn't work, you could look at consolidating your debt. Debt consolidation is taking one big debt with a lower interest rate or zero interest to pay off all your debts. It helps you as you don’t have to paying off multiple debts but only single installment a month.

Credit Counsellors:
If sometimes you can’t help yourself, credit counsellors can. They help you draw your budget, reduce your spending, negotiate with your banks for lower interest rates. To get best services at best prices,research well before consulting to any agency.

Settlement/ Bankruptcy:
If you have no other resort left, settlement can be the last option. In cash settlement with your credit or bank, the bank gives you a big discount for paying off your debt by a certain date in cash. If you don’t have cash for a cash settlement, then you may have to declare bankruptcy.

Settlement and Bankruptcy both negatively affect your CIBIL score  and stay on your credit report for a long time, so try to follow the above steps and try to never reach the last resort.  

contact us for a more tips : www.cibilconsultants.com
source: secondary

When to check your credit report and improve your credit score?

Whether you are planning to buy a home, a car or even a new credit card, your credit score has immense affect on your loan processing. A credit score is a 3 digit number that shows numeric summary of your credit health. Such score is derived by credit bureaus by analyzing your credit history. The score usually ranges from 300 to 900 points and the higher score suggests more chance of getting approval of your loans. If you are in dilemma to find how to improve credit score, following tips may help you:

ñ      The first and foremost easy action to improve your credit score is to pay off all your bills on time and pay regular installments on your loan default. Even, if your credit score is trembling, you just follow the technique of paying all the bills on time. You need to maintain no late payment status for at-least seven years.

ñ      It is important to put a limit on your credit card use and utilize it only for certain ways. Your credit score would be on the higher side if you will make less use of credit cards as well as will avoid using too many credit cards. The ideal would to be use between 10% and 20% or less of the total credit available.

If you don’t have any idea how to get credit report and improve your credit score, it is better to take help of professional credit agencies. These agencies become your friend and guide in showing you the right way to improve your credit score.
Visit www.cibilconsultants.com and book an appointment now !

Source: Secondary

Follow these guidelines and build your credit

Following a responsible credit life is good financial practice for every individual. You get better chances of getting approved for loan and along with better interest rates. In spite of all this, advantages will appear during renting or buying a house and during employment opportunities, qualifying for a corporate credit card, etc.

Want to build credit? Have patience:
Credit score cannot be changed overnight as they reflect your credit behavior over a period of time. You can’t just improve them in a day- act patiently. The good thing about it is that credit scores concentrate more on present activity so if you have negative information in the past they won’t matter much as they keep on ageing.

Bad credit cannot be erased:
Negative information ruins your credit score because it stains your report for a long time. They may remain on your report from a period of 7-10 years. So try to avoid adding any kind of negative term to your report.

Regular bill payments:
Paying bills regularly doesn't give you any additional points but it certainly does help you build a responsible credit history. In fact if you are not regular and default on your payments, it would hurt your credit score that much.

Use Credit:
The main key to building your credit is using credit in form of credit cards and loans. But this credit should be used in moderation and not be over used. Maintaining a low balance on credit cards and paying off the installments on time is the right way to build your credit. These show how responsible you are with the credit you use and helps boost your score. Having credit lines is also important.

Establish a long history of good responsible credit behaviour and you would build your credit in no time. Credit scores are calculated by the credit bureaus like CIBIL, Equifax etc on the basis of the information provided by various banks and lenders.

Source : Secondary

Keep your slate clean

Errors in credit report can hamper your chances of getting loans. Here's how you can get them corrected

How will you feel if your loan application is rejected for not paying a debt that you never availed of? Worse, what if the loan in question is mentioned in your credit report as well?

But how can a loan you have not taken find its way into your credit report? Whose fault is it- banks, which send customers' details to credit bureaus, or credit bureaus, which prepare these reports? More important, what steps can you take to get such wrong entries removed from the report?

Before we seek answers, let's see the kind of mistakes that can creep into your credit report, which has become your financial 'character certificate'.

NATURE OF ERRORS

The errors can be as mundane as wrong name, address, identity number (PAN, Aadhar), even gender or date of birth. These are, however, not significant as they do not necessarily ruin your credit record.

The serious errors are inclusion of someone else's loan in your report or amount overdue that is much higher than the loan taken. 

Then there are mistakes in date of payment, account status (paid, defaulted, settled, disputed), date of loan closure, etc. These mistakes, if not corrected, can impact your credit score, resulting in rejection of loan applications or blacklisting by banks.

It is, therefore, important to keep your slate (read credit report) clean. To be able to do so, you need to look at your credit score and history regularly and not only at the time of applying for a loan.

"In the current process, credit bureaus do not verify with customers the data received from banks. It is, therefore, advisable to access your credit report regularly and see if the data there are correct," says Sanjay Patel, managing director and chief executive officer, Equifax, a credit bureau.

WHOSE FAULT IS IT?

Credit bureaus receive customers' details from lenders. They draft credit reports by collating these details, which they cannot change. They can only do 'logical' checks and reject some data if three-four mandatory fields such as PAN, address, etc, are not filled.

Errors can happen at both data submission and aggregation stages. At the submission stage, it is the lender that may be at fault. Details such as names and addresses, which are manually entered, may be wrong due to typographical errors at the lender's end. Also, data about credit behaviour, latest status of settlement, latest balance, etc, may not be accurate or according to the customer's understanding of his current status.

"Data submitted by banks are a result of multiple entries by many people. Despite adequate controls, a data entry mistake could result in an error, though these are far and few," says A Meenakshi, head, operations, ING Vysya Bank.

While sometimes there are genuine errors, there could also be discrepancies in the report because of the time lag between data collection and submission or data submission and updating of account status.

"The data come to bureaus generally with a one-month lag and, hence, the status of the account may not be up to date. This may appear as an error to the customer," says Patel of Equifax.

Imagine you made a payment on the 10th of the month and the report goes to the bureau on the 15th. In such a case, the lender has sent one-month-old data and, hence, your payment may not be captured in the report.

There are other data processing time lags too. For example, banks outsource loan collection to third-party agencies, which may have collected the cheque but not informed the bank on time. The processing of cheques itself takes time (outstation ones may take 48-72 hours to be cleared).

Then there are delays at the end of call centres. You may have called up the bank for converting a credit card payment into equated monthly installments. The process may take time and the bank, in the meantime, may report the amount as an overdue.

At the aggregation stage, bureaus use computer algorithms to put the data in sequence. However, due to various commonalties (in name, address, date of birth, etc), complex or incomplete addresses and insufficient information, it is possible that a loan is assigned to someone else's name.

Due to varying levels of quality of data such as names and addresses and unavailability of latest and complete data with lenders, the aggregation of holdings across lenders may not be complete.

"There are chances that there are over-combines on the report due to lack of data or similarity of multiple factors like name, address, date of birth, etc, which may cause errors to creep into the report," says Patel of Equifax.

THE RECOURSE

"There is recourse, but half the time people struggle because they had not seen their credit report earlier. It is at the time of loan application, when the lender informs them about the default entry, that they realise their mistake, which now needs to be corrected immediately. However, a resolution may not be possible in such a case," says Mohan Jayaraman, MD, Experian. He says one must get his or her credit report once a year so that errors, if any, can be corrected.

If one finds that a loan has been incorrectly (wrong amount overdue, wrong date of closure, etc) reported, one can take up the issue with the lender. The lender will verify the details and then submit the corrected data to the bureau, which will then change the credit report accordingly.

If a loan shown in the report has not been taken by the person, he can approach the bureau directly and register a complaint.

All bureaus have dispute resolution forms on their websites that aggrieved customers can download and send with relevant identification documents.

If the error is due to data submitted by the bank/lender, the bureau will take up the issue with the lender. According to the law, banks have to come up with formal resolution of a dispute within 45 days of the issue being raised.

DISPUTE RESOLUTION

Not all disputes arising out of such errors are easily resolved. Usually, errors at the data aggregation (bureau) level such as wrong details and loan account can be corrected easily. However, disputes related to wrong reporting of a loan (by banks) such as wrong overdue amount, status of the loan account, date of closure and date of payment can take time to get resolved.

Ankur Singla, founder and CEO, Akosha, a consumer grievance redressal company, says they generally receive complaints related to score/credit history not updated in bureau records despite clearance of the outstanding amount and those related to updating of credit scores in the wrong account.

"These cases are at times difficult to resolve because of lack of documents that can be shown as proof. Besides, most banks have outsourced collection to third parties, due to which it becomes difficult to connect to the right person and follow up with him on a regular basis," says Singla.

If you are not satisfied with the resolution of your complaint, you can approach the bank or the bureau again, specifying what you want. If you are still not satisfied, you can knock at the banking ombudsman's door or move a consumer court.

Source: Secondary

Guaranteeing a loan can affect your credit score and history

Nowadays, access to your house or car or that dream holiday has been made easier by lending companies offering credit and loans at increasingly competitive rates. However, one must note that taking a loan doesn’t solely depend on the borrower’s financial standing. If lenders feel that the financial health of the end borrower cannot be determined standalone, or in case the borrower has no source of income, another option to get a loan processed includes involving a guarantor. Apart from facilitating an individual to fund his education or business, such an arrangement propels financial inclusion, thereby enabling the economy to grow holistically. 

Naturally, for a financial institution, it is of paramount importance to make sure that the borrower has the capacity to repay the loan with due interest. In case the primary borrower defaults, a guarantor’s role is extremely crucial, as they become the fall-back option for the lender. Lenders insist on guarantors for loans in which there is no appropriate collateral, such as education and unsecured installment loans. For other loans too, lenders can insist on one, especially if the lender has a reservation on the repayment ability of the primary borrower. Data shows that loans backed by guarantors have lower default rates than the average of the portfolio in products like commercial vehicles. Hence, the creditworthiness of the guarantor is of substantial importance.

  

In India, several loan accounts, specifically education loans, are backed by guarantors. In the case of education loans, over 80 percent of the loans are booked with guarantors since the primary borrower would not be earning for the duration of his/her education. In most cases, a loan gets approved at the behest of a guarantor, who indirectly assumes the responsibility of furnishing the loan though he is not the end borrower. Guarantors are legally responsible to assume the liability if the primary borrower defaults. A guarantor’s role doesn’t end with the disbursal of the loan; this is where the responsibility actuality just begins. There are several issues that guarantors need to know, who choose to be good Samaritans for their friends’ or family members’ cause. 

Most importantly, a loan sanctioned will directly impact the guarantor’s credit report and score. Though a guarantor might be financially prudent and disciplined in paying his or her own equated monthly installments (EMIs), credit card bills, the friend or relative who they are backing might not emulate that same responsibility. Should the friend or family member miss a payment or make a late payment, the guarantor’s credit history and score would be negatively impacted. Therefore, one should keep in mind that the moment they sign as a guarantor for a loan, it shows up in their credit report with a clear indication that they are the guarantor. The guaranteed loan will reflect on the guarantor’s credit report and will be used by the lending institution when eligibility for a loan is calculated. 

Additionally, it is advised that the following facts are taken into consideration before signing up as a loan guarantor. One must also remember that a guarantor cannot take a stance on deciding the limit of liability towards the loan. The very purpose of getting a guarantor for a loan is to make sure that the bank has an alternate source of recovery if the principal debtor defaults. So, one must not always go by the credit repaying capability of the end borrower alone. Instead, a guarantor must calculate his own financial capability before signing up. 

At the same time a guarantor needs to bear in mind his own financial goals. If the prospects of purchasing a new home or starting up a business are on the horizon, the guarantor should stick to backing small loans that will not weigh heavy on a credit report. A financial institution might refuse credit or might reduce the amount of credit to the guarantor if he or she is already backing another loan of a fairly large amount. If at all one has to become a guarantor, getting another guarantor to go in on the loan, as the liability could then be split between the two guarantors. The strength of the relationship with the primary borrower based on which one becomes a guarantor needs to be borne in mind as especially in long term loans. 

There have been cases where a guarantor has been penalized for the principal applicant’s delinquency. Hence, it is not wrong to assume that a guarantor’s liability could be more than the principal borrower’s. Even if the guarantor has a good track record of repayments or good credit history, a delinquency could act as a deciding factor for creditworthiness when banks access credit reports. So before signing on the dotted line, a guarantor should weigh all of the pros and cons associated with the financial backing of friends and family.

Source: Secondary

Credit score can fall even after repayment of loan.

Traditional wisdom says repaying loan(s) helps one get a good credit score. However, this might not always be true.

Consider the case of a professional Rahul . Recently, his application for a housing loan was rejected, as his credit score was lower than required by the lender.

His score, 680 two years ago, dropped to 620 this year, despite the fact that he completed the repayment of a car loan of Rs 10 lakh within the term of five years (which ended in December last year).

Most lenders require a score of 700-750. Lenders and credit counselors say there are a number of reasons for such rejections. Typically, those in a situation such as Rahul should check their repayment history, as irregular loan payments hit one’s credit score.

In Rahul’s case, one factor might be the fact that he doesn’t have any loan to service now. If there’s no loan to be repaid, there is no case for a credit score. Experts say this could easily pull down one’s credit score by 5-10 points. Therefore, it might be a good idea to own a credit card and make small spends through it, though owning a credit card but not using it lowers one’s score.

Such customers are termed ‘credit-hungry’. Each enquiry could pull down the credit score by 5-10 points. As such, shopping for best loan rates online is a better idea.

One should ensure she/he does not take too many unsecured loans —personal loans, credit cards, etc. One who is servicing more than one personal loan will always have a lower score than someone servicing one or more housing loans, even if the personal loans are repaid on time.

Similarly, those with more than three credit cards have a lower credit score, even if their repayment history is good. Try not to repay credit card bills in equated monthly installments, as this hits your credit score. over-utilizing active lines of credit could also have a negative impact on credit scores.

Those who have negotiated with a lender to settle loans also have lower scores. Usually, an unpaid credit card bill is considered a non-performing asset (NPA) after 90 days. Once termed an NPA, the lender can’t charge interest. Subsequently, the borrower pays only the outstanding, or principal, and closes the account. However, while it might be easier to repay such a loan, this isn’t good for your credit profile.

Protect your credit score by opting for packages at www.cibilconsultants.com

Source: Secondary

What is CIBIL Trans Union score?

CIBIL Trans Union Score is the one of the most reliable credit scores in India. This score is generated by Credit Information Bureau (India) Limited. The score is derived by using the details found in the “Accounts” and “Inquiries” sections on your Credit Information Report (CIR) and ranges from 300 to 900 points. The closer your score is to 900, the more favorably your loan application will be viewed by a lender. The score plays a critical role in the loan approval process.

The CIBIL Trans Union Score has become the industry standard for credit decisions, widely used by most leading lenders in India to make objective, fast and reliable credit decisions.

Most consumer finance providers use CIBIL Trans Union Score to ascertain whether or not the customer availing any credit facility from them is likely to become delinquent within a year. Therefore, they can access such credit scores and credit reports without paying any money. Other lenders and banks that do not provide information about their borrowers cannot access such scores without payment. Individuals can ask for their credit score from the CIBIL Bureau.

CIBIL Trans Union Score has integrated the system. Therefore, it is now not possible for borrowers to provide wrong information to different lenders and avail more loans than they can manage.

While CIBIL Trans Union score calculation formula takes into account all mortgage installments and other regular payments, the fact remains that many Indians are averse to borrowing. This is the reason lenders in India do grant loans to people who do not have the required level of credit scores.  In western countries it is unlikely that a person does not have a credit profile.

Trans Union has been active in the Indian marketplace as the technical partner and a shareholder in CIBIL, the first credit bureau in India. As a result, we have a strong understanding of the Indian financial services industry and are uniquely qualified to deliver solutions that can help you meet your challenges.

Determine your CIBIL TransUnion Score, Renew, Revamp and Retain it with services available at www.cibilconsultants.com
Book an appointment now !

Source: Secondary

Real-time Credit Scoring Fuels Personal Loan

Unsecured personal loans which had all but disappeared after record defaults in 2007-08 are making a strong comeback thanks to the Credit Information Bureau of India's real-time credit scoring. Also expanding the market are new intermediaries who are generating leads that help lenders go beyond tapping walk-in customers at retail chains.

Consumer loans on equated monthly installments started picking up a couple of years back initially through credit cards. The EMI sales was also driven by subvention from the dealer or manufacturer who agreed to bear the interest cost but not the credit risk. Card companies were the first to tap this opportunity. But considering that there are only 1.9 crore credit cards in circulation the market is quite limited. Lenders such as Bajaj Finance, Future Capital, and Fullerton have expanded the market by putting up their loan desks within retail chains.

"In 2007 all finance companies did not have a clue of who the borrower. The loans were on the basis of documents filed by the borrower. We found that even Form 16 documents were fake" said the chief of finance company. He added that loans were pushed by agents who had an incentive to get disbursements which created a moral hazard resulting in bad loans rising. What has changed now is that lender is now able to identify how leveraged the applicant is, they can also identify in five minutes if the borrower had missed out on any loan installment in the past.

Besides finance companies banks too are scaling up their consumer loan business. According to the latest RBI data, outstanding consumer loans on April 28, 2014 stood at Rs 13700 crore up 60% from Rs 8600 crore a year ago. These consumer loans are typically those availed for making small-ticket purchases such as washing machines, flat screen televisions or laptops. Among finance companies, Future Capital's consumer loan book has almost doubled from Rs 1821 crore in March 13 to Rs 3593 crore in March 14. Bajaj Finserv has seen its Consumer loans disbursements rise 36% to Rs 13,360 crore in FY14.

Lenders are able to take a decision within minutes because they are able to pull down an individual's credit history within five to seven minutes and find out the extent of loans and the level of delinquency. "We now have credit history information in respect of 330 million accounts in our repository which includes information from 350 cooperative banks and over 300 regional rural banks," said Harshala Chandorkar, senior VP, Cibil. "Besides drawing the credit scores from Cibil, the lenders have systems where their credit policy is built into the software. This allows them to disburse loans instantly," she added.

Expanding the market to tier II centres are a new set of intermediaries. Onemi India which initially started as a catalogue mail order firm which retailed consumer goods at EMIs by tying up with card companies. With a customer base of 2.5 lakh Onemi has now raised $5mn in private equity funding from Venture East. It is now targeting loans of Rs 385 crore during FY15.

"For the lenders the last mile is always the problem. What we do is conduct the due diligence on behalf of the lenders at the applicants location. Besides earning from generating leads for lenders we are also looking at whether we can underwrite some of the credit risk," said Abhijit Bhandari, director and founder of Onemi. The company is now looking at raising more capital which will be invest in warehouses and logistics.

"We are also looking at selling to customers of micro finance companies. Since MFIs can lend only in income generating segments we are looking at retailing goods such as inverters and bicycles. Our research has shown that there is also a great demand for laptops even in rural areas," said Bhandari. While banks continue to find it a challenge to lend to the new-to-credit segment, finance companies and intermediaries like Onemi see this as a big opportunity.

Besides getting information on borrowers, Cibil is now trying to enrich its database by including repayment profile of those who have never availed of a loan. The credit scoring agency has sought permission from Reserve Bank of India to obtain payment track record in respect of utilities such as telephone bills and also in payment of insurance premium. "The telecom companies have expressed their willingness to share subscriber credit records. They are already using Cibil credit records for fixing credit limits for post-paid subscribers," she said.

Improve and maintain your credit score at www.cibilconsultants.com

Source: Secondary